Santander Takes Europe’s Biggest Provisions for Coronavirus

(Bloomberg) -- Banco Santander SA reported the highest provisions by a bank in continental Europe so far this quarter as it attempted to put a number on potential loan losses caused by the coronavirus outbreak.

Santander is holding back 1.6 billion euros ($1.7 billion) specifically for losses linked to the virus. Total provisions jumped to a record 3.9 billion euros in the first quarter, causing net income to plunge 82% to 331 million euros, the bank said in a statement.

Provisions have become the key focus of this year’s earnings season, with banks trying to estimate the impact of the global economic lockdown on its customers. Santander has spent most of the past decade cleaning up its balance sheet after Spain’s housing market collapsed in 2012, souring billions of euros of loans.

Like many competitors, Santander was reluctant to set specific targets going forward as uncertainties remain over the virus’s impact and government economic relief efforts.

“We will review our strategic targets once we have a more complete understanding of the full impact of the crisis,” Chairman Ana Botin said in an emailed statement. “However, we are confident in the fundamentals of our business model and the pillars of our strategy remain unchanged.”

Santander fell as much as 1.5% in Madrid trading and was down 0.6% at 1.96 euros as of 9:04 a.m. The stock has slumped about 48% this year, compared with the 41% decline of the STOXX Europe 600 Banks Index.

Latin America

Santander already had the highest provisions of any European bank due to its exposure to emerging markets such as Brazil and Mexico as well as to its sub-prime auto loan business in the U.S. Provisions increased to the highest level in five years in the fourth quarter, mainly due to Europe, where the lender has struggled with low interest rates. The amount set aside tripled at its consumer finance unit and doubled in the U.K. in the last three months of 2019.

The coronavirus, which hit Spain in the second half of March, had little impact on first-quarter earnings. Underlying profit rose 8% from a year earlier to 2 billion euros, once again showing major differences between lender’s stronger and weaker international markets. The Americas, Brazil and the U.S. posted solid profit in their own currencies while European units once again lagged behind.

The U.K. continued to be a trouble spot for the group, with underlying profit falling 27% due to lower income from lending and fees.

Earnings gave some indication of the new order for business in the coronavirus crisis. New mortgage lending fell 60% and new consumer loans dropped 25% in April compared with February. On the other hand, corporate loans and lending to small-and medium-sized enterprises rose 100% in the same period.

HSBC Holdings Plc on Tuesday reported it will take its biggest charge for bad debt in almost nine years, reporting provisions of $3 billion in the first quarter. Last week, UniCredit SpA increased provisions by 900 million euros while Credit Suisse Group AG set aside more than double what analysts estimated, reserving $1 billion to cover for the impact of the virus. Deutsche Bank AG on Sunday said it made about 500 million euros of provisions, pushing its total to the highest in six years.

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